Combined sales grew organically
by 3.3% in FY 2018

Combined sales grew organically by 3.3% in FY 2018

Results were supported by sound organic growth in HV Underground and solid performance in Telecom. General Cable positive organic growth mostly driven by North America.

The Board of Directors of Prysmian Group has approved the consolidated results for the FY 2018. These results confirmed the positive performance of all businesses that reflected the Group’s organic growth. These results were also thanks to the positive contribution made by General Cable. Chief Executive Officer Valerio Battista stated that sales organic growth was mainly supported by the strong performance of Telecom and High Voltage Underground, which contributed also in terms of profitability. This partially offset the impact of the Western Link Project provisions. In this regard, the CEO pointed out, Prysmian Group “is proving able to tackle all criticalities by adopting any necessary measure to support its customers with the professionalism of a market leader”.

The integration with General Cable continued to be a value creation driver, generating synergies that exceeded initial expectations in 2018. This led to the revision upwards by as much as €25 million of the initial target that will be now achieved one year in advance. New target at €175 million by 2021. Net Financial Debt also improved above expectations to €2,222 million by 31 December 2018. This scenario allowed for the announcement of an improving full-year 2019 profitability target, with Adjusted EBITDA in the range of €950 million-€1,020 million, and Free Cash Flow projected at approximately €300 million, after the payment of about €90 million restructuring costs.

Full-Combined Sales

Sales, including General Cable for the full year of 2018, amounted to €11,577 million (of which €3,536 million was attributable to General Cable), with organic growth of +3.3% compared to 2017. Growth was chiefly driven by the optical cables business and connectivity systems for broadband telecommunication networks, as well as the uptrend in High Voltage Underground.

Full-Combined Adjusted EBITDA

Adjusted EBITDA, including General Cable for the full year of 2018, was €837 million (of which

€197 million was attributable to General Cable) compared to €940 million in 2017 (of which

€204 million was attributable to General Cable). The adverse effects generated by the Western Link provisions were mainly offset by the improved margins reported by Telecom and High Voltage Underground.

Net financial debt

The net financial debt improved above expectations to €2,222 million by 31 December 2018. The main factors were the impact generated by the acquisition of General Cable amounting to €2,601 million; positive operating cash flows at €552 million; a decrease in net working capital amounting to €100 million; net operating investments totaling €278 million; and net finance costs paid in the amount of €84 million.

Guidance

The Group announced that it improved the full-year 2019 profitability target, with Adjusted EBITDA in the range of €950 million-€1,020 million, and Free Cash Flow projected at approximately €300 million.

Projects

Organic growth up 4.7%

Profitability impacted by the Western Link provisions. The order book at 31 December 2018 stood at €1,900 million. Submarine market slightly improving, confirmed at about €3 billion. Positive performance of High Voltage Underground confirmed in Q4 thanks to growth in APAC, Southern Europe and South America.

The Project Business full combined sales, including General Cable’s contribution for 12 months, grew 4.7% to €1,804 million in 2018. Adjusted EBITDA amounted to €170 million, down from €298 million in 2017. The negative impact came from the €95 million provisions related to the Western Link project, including €25 million allocated following the criticalities disclosed in February 2019. Adjusted EBITDA was also impacted by the phasing on some projects as well as by the unfavourable comparison with 2017.

The organic growth of the Submarine Cables & Systems was affected by the impact associated with the Western Link project. The main projects for the period were the connections of the offshore wind farms Borwin3 and 50 Hertz, the NSL between Norway and Great Britain, the Cobra cable link between the Netherlands and Denmark, and the IFA2 interconnector between France and Great Britain. Also noteworthy is the completion of several inter-array connections, such as the Wikinger project — one of the most important offshore wind farms in the Baltic Sea — and the project that the Group was recently awarded for developing a cable system to connect Kincardine floating offshore wind farm to the British mainland.

In the High Voltage Underground Business, the positive results already recorded in 9M 2018, driven mainly by the growth in demand in the Asia Pacific, southern Europe and South America, were also confirmed in Q4. The procurement process started for major interconnection projects in Germany (SüdLink and SüdOstLink) and recently the Group secured important projects, including the involvement in the project worth $190 million aimed at upgrading Washington D.C. area’s power transmission grid.

With regard to the Offshore Specialties business, the market of umbilical cables shrank in Brazil, the Group’s top market.

The Power Transmission order book totalled about €1,900 million, also including that of General Cable, which amounted to €175 million, down compared to the previous year as a result of the decrease in the number of projects acquired.

Energy

T&I growth confirmed

T&I reported increased volumes in Europe and North America. Power distribution posted positive organic growth in Q4 and improved profitability thanks to the increase in volumes and operating efficiencies. Good organic growth for Industrial & NWC.

Energy full combined sales including General Cable grew organically 2.4% to €8,139 million, thanks to the increase in volumes recorded in Europe and North America. Adjusted

EBITDA was €372 million from €395 million, with a 4.6% ratio for sales from 4.9% in 2017.

Energy & infrastructure full combined sales posted a 2.1% organic growth to €5,492 million with Adjusted EBITDA at €207 million from €233 million and a ratio of sales at 3.8% from 4.3%. Following the merger with General Cable, the Group expanded the Energy & Infrastructure business’ product portfolio and strengthened its geographical position in areas such as North America and Latin America.

Trade & Installers reported ongoing organic growth, confirmed also in Q4 2018, thanks to the continuous increase in volumes in North America and Europe, with adjusted EBITDA improving slightly, mainly as a result of the increase in profitability in southern Europe following the CPR introduction and positive performance in North America.

Power Distribution reported a positive organic sales trend in Q4, particularly in North America and Europe, while unfavourable exchange rates and the weakness reported by Northern Europe affected profitability. This nevertheless improved sharply in Q4.

Industrial & Network Components full combined sales reported a sharp organic growth of 3.3% to €2,353 million with adjusted EBITDA in line at €167 million, and the ratio to sales went to 7.1%.

Specialties, OEMs & Renewables recorded organic growth of sales, although declining in Q4 2018, with an increase of railways, solar and crane applications and a stable trend in mining and wind. Growth was chiefly driven by North America and South America and the recovery of the APAC area. Solid growth was reported in the elevators business, also confirmed in Q4 2018, while the sales uptrend of the automotive business was driven in particular by growth in North America.

Telecom

Profitability increased

The business enjoyed a sharp sales uptrend thanks to the positive performance of Europe, North America and Latin America. Profitability increased thanks to volumes growth, efficiencies and optimisation of the manufacturing set-up. Solid MMS performance regarding strong demand for data centres and data cables in Europe and a mixed improvement in North America.

Telecom full combined sales reported a sharp organic rise of 6.4% to €1,634 million driven by the positive trend in Europe and Latin America. Adjusted EBITDA also rose sharply to €295 million from €247 million with margins improved up to 18% in sales from 15.5% in 2017. The results benefited from the increase in volumes, the recovery of industrial efficiencies and the positive results of the subsidiary YOFC in China.

A positive €11 million one-off impact was generated by the release of the write-down of a receivable due by a Brazilian client, written down in 2016, and by the carrying over of the positive results of YOFC in 2017.

The integration of General Cable allowed the Telecom business to increase its exposure to the American Multimedia Solutions market, increase its optical cable production capacity and strengthen its presence in Latin America. In Europe, the volume trend was also positive while in North America the development of new ultra-broadband networks is generating a constant rise in demand, testified by the three-year agreement worth $300 million signed with Verizon. Brazil and Argentina also showed an increase in investments on behalf of their main telecom operators. In Australia, works related to the construction of NBN’s new ‘multi-technology’ platform continued successfully.

Prysmian also announced the implementation of the FlexRibbon™ line, with two new products that will support broadband data centres managed by major companies worldwide. The high value-added business of optical connectivity accessories continued to perform well, thanks to the development of new FTTx networks in Europe, particularly in France.

Multimedia Solutions performed well, particularly in Europe, where demand was also driven by the growing investments in data centres and the strong demand for data cables for industrial applications and residential buildings.

THE BUSINESS OUTLOOK SEEMS MODERATELY UPBEAT

As the global economic slowdown continues, the demand in construction and industrial cable business is expected to be slightly higher along with a moderate recovery in the utilities segment, while the submarine and underground markets appear stable. Telecom growth to remain solid.

After reporting growth in 2018 despite the emergence of signs of cyclical deterioration in many advanced and emerging countries, the consolidation of slowdown trends seems to have been confirmed in early 2019, with some economies expected to worsen. The expansion of international economic activity indeed continues to be hindered by multiple uncertainty and risk factors.

DEMAND SEEN AS STABLE OR SLIGHTLY HIGHER. Within this macroeconomic scenario, Prysmian Group expects that in 2019, demand in the cyclical construction and industrial cable businesses will be slightly higher than in 2018, while the medium voltage utilities cable business is also expected to show a trend of moderate recovery. In the submarine systems and cables business, Prysmian Group is aiming to reaffirm its leading position in light of a market that is expected to remain stable at the levels of 2018. The results of this business will be positively influenced by the recovery of the negative effect of the Western Link provisions.

SOLID TELECOM GROWTH TO CONTINUE. At the organic level, results are expected to decrease in 2019 due to the limited collection of orders. Also, in the High Voltage Underground systems and cables business, the Group expects virtual stability, with a gradual improvement of performance in China and South-East Asia due to the new manufacturing set-up. The telecom business is also expected to remain on a solid growth path in 2019, driven by the increase in demand for optical cables in Europe and North America, whereas a slowdown is expected due to a reduction in volumes in the Australian market.

GUIDANCE IMPROVED. The Group expects to achieve an adjusted EBITDA for FY 2019 in the range of €950-€1,020 million, significantly up compared to €837 million reported in 2018, with estimated synergies of €120 million. Additionally, for 2019 the Group forecasts a cash flow generation of approximately €300 million.